TEXT-S&P revises Taipei Fubon Bank otlk to neg; group rtgs afrmd

Fri Dec 28, 2012 4:42am EST

Related Topics

-- The 'BBB+' long-term and 'A-2' short-term issuer credit ratings, as well as the 'cnA+/cnA-1' Greater China regional scale ratings on Fubon FHC;

-- The 'A-' long-term and 'A-2' short-term issuer credit ratings and 'cnA-1' short-term Greater China regional scale rating on Taipei Fubon Bank;

-- The 'A-' local currency insurer financial strength and issuer credit ratings, as well as the 'cnAA-' Greater China regional scale ratings on Fubon Life Insurance Co. Ltd.;

-- The 'A-' local currency insurer financial strength and issuer credit ratings, as well as the 'cnAA-' Greater China regional scale ratings on Fubon Insurance Co. Ltd.; and

-- The 'BBB+' long-term and 'A-2' short-term issuer credit ratings, as well as the 'cnA+/cnA-1' Greater China regional scale ratings on Fubon Bank (Hong Kong) Ltd.

Rationale

The outlook revision on Taipei Fubon Bank reflects our view that a planned acquisition of an 80% stake in China-based First Sino Bank (not rated) by Fubon Financial Holding Co. Ltd. (Fubon FHC) is likely to negatively affect Taipei Fubon Bank's stand-alone credit profile (SACP), which stands at bbb+. This is assuming the group fails to provide sufficient capital to the bank to fund this deal, coupled with the potentially high growth strategy of First Sino Bank. We view Taipei Fubon Bank's capital and earnings as "strong" with a risk-adjusted capital (RAC) ratio before diversification of 10.4% in June 2012. Nonetheless, the ratio is likely to drop to below 10% if the Fubon FHC group fails to inject capital to Taipei Fubon Bank as planned, coupled with aggressive growth on either Taipei Fubon Bank or First Sino Bank over the coming one to two years.

Our decision to affirm the ratings on Taipei Fubon Bank and other group units reflects our view that the group could maintain its current credit profile after the First Sino Bank acquisition. This is considering the group's prudent capital-raising plan to fund the transaction, as well as First Sino Bank's small size compared to the group. Based on First Sino Bank's 2011 figures, the bank will account for about 4.5% of Fubon FHC's assets and 4% of equities on a pro-forma basis. The group will be able to maintain its capitalization and double leverage ratio at current level after completing proposed capital-raising activities, in our view.

Fubon FHC announced on Dec. 27, 2012 that it plans to acquire 80% stake in First Sino Bank via Fubon FHC (taking 29% share) and Taipei Fubon Bank (51% share) and will also subscribe to new capital issued by First Sino Bank. The total transaction amount is up to Chinese renminbi (RMB) 6.45 billion (about New Taiwan dollar (NT$) 30.6 billion). Fubon FHC plans to fund the transaction through its internal cash resources as well as equity fund raising of NT$20 billion-NT$25 billion. The group also plans to inject capital of NT$10 billion-NT$15 billion to Taipei Fubon Bank to fund the transaction, of which NT$ 7.0 billion has been approved by the group's board and should be in place in January 2013. The transactions are still subject to the approval of both the Taiwan and China regulators.

Outlook

The negative outlook on Fubon FHC group reflects the negative effect of the proposed acquisition on Fubon Life's pressured capitalization and potential earnings volatility under current volatile capital market and low interest rates in Taiwan. The outlook also reflects the pressure on Taipei Fubon Bank's capitalization if the group fails to inject an adequate amount of capital to support our current "strong" assessment on the bank's capital and earnings. Fubon Life and Taipei Fubon Bank collectively account for about 91% of the group's proforma assets and 75% of capital as of June 2012.

We may lower the ratings on the group and its subsidiaries if the group's capitalization and profitability weaken, particularly for its life and bank subsidiaries, due to the group's inability to raise as much capital as we expect. We may also lower the ratings if the group pursues overly aggressive expansion, or experiences unforeseen capital market volatility or a significant increase in credit costs.

We may revise the outlook on the group ratings back to stable if the group can enhance its capitalization, including the capitalization of Fubon Life to an adequate level by international standards, as well as to maintain Taipei Fubon Bank's RAC ratio above 10% after capital injections.

Ratings Score Snapshot

To From

Issuer Credit Rating A-/Negative/A-2 A-/Stable/A-2

SACP bbb+

Anchor bbb

Business Position Adequate (0)

Capital and Earnings Strong (+1)

Risk Position Adequate (0)

Funding and Liquidity Average

and Adequate (0)

Support +1

GRE Support 0

Group Support +1

Sovereign Support 0

Additional Factors 0

Related Criteria And Research

-- Outlooks Revised To Negative On Four Taiwan Life Insurers And Related Units On Lengthy Route To Restore Capitalization, Aug. 24, 2012

-- A Roadmap For Evaluating Financial Institutions' ERM Practices, May 3, 2007

-- Analytical Approach To Assessing Nonoperating Holding Companies, March 17, 2009

-- Banks: Rating Methodology And Assumptions, Nov. 9, 2011

-- Banking Industry Country Risk Assessment Methodology And Assumptions, Nov. 9, 2011

-- Credit FAQ: Greater China Credit Rating Scale Explained, April 27, 2011

-- Bank Capital Methodology And Assumptions, Dec. 6, 2010

Ratings List

Ratings Affirmed; CreditWatch/Outlook Action

To From

Taipei Fubon Commercial Bank Co. Ltd.

Counterparty Credit Rating A-/Negative/A-2 A-/Stable/A-2

Downgraded; Ratings Affirmed

To From

Taipei Fubon Commercial Bank Co. Ltd.

Greater China Regional Scale cnAA-/--/cnA-1 cnAA/--/cnA-1

Ratings Affirmed

Fubon Bank (Hong Kong) Ltd.

Counterparty Credit Rating BBB+/Negative/A-2

Greater China Regional Scale cnA+/--/cnA-1

Fubon Financial Holding Co. Ltd.

Counterparty Credit Rating BBB+/Negative/A-2

Greater China Regional Scale cnA+/--/cnA-1

Fubon Insurance Co. Ltd.

Fubon Life Insurance Co. Ltd.

Counterparty Credit Rating

Local Currency A-/Negative/--

Greater China Regional Scale cnAA-/--/--

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